- within Intellectual Property, Immigration and Technology topic(s)
- with Finance and Tax Executives
- with readers working within the Banking & Credit, Business & Consumer Services and Healthcare industries
In September 2025, the Federal Trade Commission (FTC) abandoned its efforts in court to defend its non-compete rule, which would have effectively prohibited non-compete covenants nationwide. This followed developments at the state level, during the summer of 2025, which saw Delaware and Florida take two very different paths regarding non-compete law. While Delaware courts are now trending more restrictively, the Florida legislature is moving the other way. As the non-compete landscape continues to shift, it is not always toward more restrictions of non-compete covenants.
FTC Non-Compete Rule
The FTC voluntarily dismissed its appeals of court rulings striking down its non-compete rule on September 5, 2025. Nonetheless, there are still circumstances where non-compete covenants may violate federal law. For example, the day before the FTC dismissed its appeal, the FTC filed a new lawsuit against a pet cremation company alleging violation of Section 5 of the FTC Act. The FTC, In the Matter of Gateway Services, Inc., alleged that the defendant required nearly its entire workforce of 1,900 employees to enter into non-compete covenants, regardless of skill level or job duties.
The FTC's action highlights that even without its new non-compete rule, the FTC believes that existing law still empowers it to take action against employers who, without appropriate business justification, enter into non-compete covenants with employees.
Delaware Courts Trend Restrictively
In the last year, Delaware courts have decided three cases that indicate an increasingly more restrictive trend when considering non-compete covenants.
First, the Delaware Supreme Court held in Sunder Energy, LLC v. Jackson, that a non-compete covenant in an operating agreement was overly broad because the non-compete restricted the defendant, Jackson, for two years after owning his incentive units. The covenants were not tied to Jackson's employment, and he was unable to freely transfer those units; consequently, the court deemed the temporal limitation to be effectively indefinite. The Delaware Supreme Court also refused to modify the overly broad covenants, something Delaware courts seem increasingly willing to do.
Next, in North American Fire Ultimate Holdings LP v. Doorly, the Delaware Court of Chancery held that non-compete covenants in an equity incentive agreement were unenforceable because the only consideration supporting the covenants was the equity units, which were forfeited upon the defendant, Doorly's, termination. Because the equity grant was forfeited, the court found that the consideration supporting the non-compete covenant was likewise extinguished.
Finally, in Payscale Inc. v. Norman, the Delaware Court of Chancery found a non-compete covenant overly broad after evaluating three factors in relation to one another: (1) the amount of consideration; (2) an 18-month temporal limitation; and (3) a nationwide geographic limitation. In other words, the court did not consider the 18-month temporal limitation—which Delaware courts have often accepted as reasonable—in isolation, but instead, considered it relative to the other restrictions. Ultimately, the court found the consideration insufficient to justify the broad temporal and geographic restrictions.
The Florida CHOICE Act Permits More Restrictive Limitations
Meanwhile, the Florida legislature took a different course with its enactment of the CHOICE Act, which became effective in Florida on July 3, 2025. The CHOICE Act applies only to employees and independent contractors (excluding health care workers) who earn more than twice the mean wage for their county. The mean wage is currently estimated to be approximately $80,000 to $150,000 per year, depending on the county.
Under prior Florida law, non-compete covenants of more than two years post-employment were presumed unreasonable. Under the CHOICE Act, non-compete covenants in Florida can now last as long as four years post-employment. The CHOICE Act also expands the scope of activity that an employer can restrict, permitting employers to bar employees from performing services for a new employer that are "similar to" those the former employee performed for their former employer in the three years before termination. The CHOICE Act applies to employees who spend the majority of their time working in Florida, regardless of choice-of-law provisions, and to employees who work for a Florida-based company where the non-compete agreement designates Florida law as controlling. This will likely result in jurisdictional disputes regarding the appropriate law to apply to a non-compete covenant in some cases.
To be enforceable under the CHOICE Act, a non-compete must: (1) be in writing; (2) acknowledge that the employee will receive confidential information or customer relationships; (3) advise the employee of their right to seek legal counsel before executing the agreement; and (4) provide at least seven days to the employee to consider the agreement.
Importantly, the CHOICE Act does not supersede Florida's existing non-compete law. Consequently, any non-compete covenant that does not satisfy the requirements of the CHOICE Act will still be governed by existing Florida law.
What Employers Should Do Now
Delaware law is often selected as the choice-of-law in operating agreements, equity agreements and even employment agreements. However, given the Delaware courts' increasing hostility toward restrictive covenants, employers should consider whether Delaware law still makes sense for their agreements. Florida, meanwhile, is moving in the opposite direction. For employers able to select Florida law as controlling, that may, in appropriate circumstances, provide a stronger likelihood that their restrictive covenants will be enforced. In addition to being mindful of changes in state laws, the FTC's recent actions highlight the importance of ensuring that employers enter into non-compete covenants only with employees where there is a legitimate business justification for restricting their employment in order to avoid claims of unfair business practices.
Employers should review their existing agreements and restrictive covenants and carefully consider choice-of-law provisions before entering into new agreements. And, as a best practice, employers should ensure that their restrictive covenants are drafted no broader than necessary.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
